HSBC Bank Agrees to Historic $2 Billion Settlement

The British-owned bank allowed hundreds of millions of dollars to flow from Mexican drug traffickers into the U.S., according to the U.S. Justice Department, and also violated sanctions laws by conducting business with Iran, Libya, Sudan, Burma and Cuba.

The bank’s breakdowns in anti-money laundering compliance allowed the funds to flow from Mexico in accounts in the United States, the Treasury said Tuesday in a release. The Treasury’s portion of the multi-agency settlement totaled $875 million. Additional settlements were reached with the Manhattan district attorney in New York and with the Federal Reserve.

The Treasury said the penalties reflect the damage to the integrity of the U.S. financial system inflicted by HSBC, and the federal government’s intolerance of behavior and business practices that disregard BSA requirements and U.S.-sanctioned regimes.

“These settlements implicate willful and dangerous practices by one of the world’s biggest banks,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. “HSBC absolutely knew the risks of the business it pursued, yet it ignored specific, obvious warnings.”

Since at least mid-2006, the Treasury said the bank lacked an effective risk-based AML program reasonably designed to manage risks of money laundering or other illicit activity, given the bank’s products, services, transaction volume, scope of business activities, geographic reach, and customers.

The Treasury’s settlement included the Office of the Comptroller of the Currency, the Financial Crimes Enforcement Network and the Office of Foreign Assets Control, all divisions of the Treasury Department.

The OCC and the FinCEN announced separate assessments of $500 million. The OCC fine is being levied for failure to comply fully with a remedial order addressing these violations, issued in 2010.

OFAC also reached an additional $375 million agreement with HSBC to settle potential liability for the sanctions violations.

From 2002 until 2009, the Treasury said HSBC rated Mexico as having “standard” money laundering risk, the lowest of the bank’s four possible country risk ratings.

As a result of the ratings, hundreds of billions of dollars in wire transactions from Mexico were excluded from the bank’s internal AML reviews. Additionally, from 2006 through 2009, the bank did not monitor bulk cash transactions conducted with its Mexican and other foreign affiliates and took delivery of more than $15 billion in cash.

In 2006, FinCEN alerted all U.S. financial institutions about money laundering risks associated with United States/Mexico cross-border cash and warned that cash from illegal drug trafficking was being smuggled into Mexico, placed into financial institutions, and then returned to the United States.

HSBC also maintained correspondent accounts for affiliates around the world and did not collect or maintain, as the BSA requires, any customer due diligence information regarding these relationships. As a consequence, many foreign financial institutions and their customers effectively gained unmonitored access to the U.S. financial system without appropriate safeguards against illicit financial activity.